Is Norwegian Cruise Line a Buy Ahead of Earnings?

Norwegian Cruise Line's stock has been hammered from its 2020 highs. Is the stock a buy ahead of earnings?
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Norwegian Cruise Line  (NCLH) - Get Report is taking a spill, sinking almost 10% on Wednesday ahead of its earnings report Thursday before trading opens.

The cruise industry has been hard hit by the coronavirus, forcing companies to dock their ships at port and wait out the storm. While there’s pent up demand - evidenced by the surge in late-summer bookings for Carnival  (CCL) - Get Report - the companies’ financials are in obvious peril.

After being left out of the stimulus bill, they have tapped into the capital markets to raise funds. Still though, concerns linger.

For Norwegian Cruise Line specifically, it has lagged its peers. Shares are still down 83% from the 2020 high, worse than the 77% decline in Carnival and the 75% fall in Royal Caribbean  (RCL) - Get Report.

It’s lagging on the upside, too. Norwegian stock is up “just” 41% from its lows, while Royal Caribbean and Carnival Cruise are up 73.5% and 52%, respectively.

Trading Norwegian Cruise Line

Daily chart of Norwegian stock.

Daily chart of Norwegian stock.

As you can see on the chart, Norwegian stock has badly lagged the broader market’s rally. It might be up more than the S&P 500 from its lows, but in terms of relativity, these charts look bleak at best.

On a closing basis, Norwegian was never able to reclaim the 23.6% retracement. For reference, the S&P 500 climbed up to the 61.8% retracement.

It’s also noteworthy that shares found resistance at $17.50, could not breakout and hold up above its key moving averages, and is now breaking below uptrend support.

This is not the chart of a healthy stock.

I don’t like to make pre-earnings trades ahead of a binary event. While expectations should be quite low heading into the quarter — and Wednesday’s near-10% beating and this week’s 17% decline help lower those expectations — it’s still hard to be bullish on such a poor-looking chart.

Yet, on a bullish reaction investors need to see Norwegian close above $13.06. If it can, it propels shares back over the 20-day and 50-day moving averages, as well as uptrend support. It opens the door up the $16.50 to $17.50 area. 

On a bearish reaction, see if Norwegian stock trades down to the April lows near $8.10. A close below puts the 2020 low near $7 in play.